This winter's volume of weather derivatives traded in Japan looks likely to be double last year as more end-users enter the fray and new products are developed. Toshihiko Aizawa, head of the product development group at Tokio Marine and Fire Insurance Co. in Tokyo, said, "The Japanese weather derivatives market is still young but we expect rapid growth in this market." He continued that corporates have recently started entering contracts in Japan to hedge their exposure to the weather in the coming winter months, using derivatives linked to temperatures or snowfall.
Aizawa continued that the insurer expects winter contracts to double from the roughly JPY10 billion (USD85 million) that was structured last year. Typical payouts are around JPY30 million and the premium ranges around 5 to 10% of the payout. The contracts have an average maturity of three months.
Additionally, Mitsui Sumitomo Insurance Co. is planning to offer a derivative that is referenced to different weather measurements including rainfall and snowfall. Yuji Ito, assistant general manager of the alternative risk transfer group in Tokyo, said this will be the first of its kind when it hits the market in the coming months.
